Dollar Anticipates Release of U.S. Pending Home Sales

The U.S. Pending Home Sales is the primary publication today that is set to determine the level of the USD when it is released at 15:00 GMT. The other main releases that are set to dominate forex trading, especially for currencies such as the Dollar and EUR is the publication of the German Retail Sales and PPI from the Euro-Zone at 7:00GMT and 10:00 GMT respectively. Traders may find good opportunities to enter the market following these vital announcements.

Economic News

USD – Dollar trades Higher vs. Yen on Positive Economic Data

The dollar extended gains against the Yen and pared losses against the EUR on Monday after data showed business activity in the U.S. manufacturing sector came in stronger than expected in January. The Dollar has been sold off recently partially due to growing optimism about the outlook for the U.S. economy. By yesterday’s close, the USD fell slightly against the EUR, pushing the oft-traded currency pair to 1.3930. The USD did see bullishness as well, as it gained over 50 points against the JPY and closed at 90.70.

The U.S. manufacturing sector showed the best growth in more than five years in January. The Institute for Supply Management said its manufacturing index, climbed to 58.4% in January, up from December 54.9% level. It was the sixth consecutive monthly rise in PMI and the highest reading since August 2004, eclipsing analyst expectations. The strength in U.S. manufacturing is being accompanied by factory expansion from China to Europe.

Another report today showed personal spending rose 0.2% in December, the third straight gain, showing job growth is needed to help drive consumer spending in coming months.

Looking ahead to today, the most important economic indicator scheduled to be released from the U.S. is the Pending Home Sales at 15:00 GMT. Traders will be paying close attention to today’s announcement, stronger than expected result may boost the USD in the short-term. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow this release.

EUR – EUR Rises on All Fronts

The EUR firmed, snapping four straight days of declines and rising in line with stocks as risk appetite increased amid the upbeat sentiment on growth. Over the past year, the EUR has become a proxy for risk appetite among developed-nation currencies.

In Europe, the euro zone manufacturing sector grew at its fastest pace in two years last month. However, the outlook on the EUR remains negative. Greece’s fiscal woes remain in the forefront of investors’ concerns, and the big question in the near term is whether euro zone monetary authorities will bail out the troubled country.

The EUR appreciated around 120 pips versus the JPY to close at 126.40 in yesterday’s trading. The 16 nation currency experienced similar behavior against the USD as the pair rose from 1.3870 to 1.3925 by days end. Against the CHF, the pair closed at virtually an unchanged level of 1.4715. Overall, the EUR, which for the last few months have been sold by most traders, is seeing these sell-positions unwind and is now making a small recovery. The question now is can EUR bullishness continues versus the Dollar?

JPY – Yen Trading Down against Currency Rivals

The yen weakened against all of its major counterparts as optimism about the global economic recovery is gaining momentum spurred demand for stocks and other higher- yielding assets. The JPY fell against the USD and closed at 90.80. Moreover, the Japanese Yen lost almost 120 points versus the EUR, closing at 126.40.

The Japanese currency fell for a second day versus the EUR before forecast reports about retail sales in Germany, Europe’s largest economy, rose. The U.S. home sales forecast report also showed improvement. The yen usually does well during times of economic downturn, but when investor confidence is restored, the market may see a sell attitude develop as traders return to their carry trades; selling JPY in exchange for higher yielding currencies.

Crude Oil – Crude Prices Up on Improved Economic Outlook

Crude oil climbed more than 2% to above $75 per barrel Monday on upbeat economic data from the U.S. and positive corporate earnings, which lifted equity markets and boosted investor confidence.

Expectations that consumers might increase demand for goods have partly fueled the rally. There is a reasonable possibility that Oil prices will continue to be bullish going into next week, providing that the economic situation of the leading economies
continues to rapidly improve.

Technical News

The daily chart is showing considerable bullish signals as the Relative Strength Index currently has the price trading in the oversold zone and the Slow Stochastic Oscillator shows a bullish cross has formed. The pair has also begun to reverse from the Bollinger Band’s lower border with the potential to reach the upper border. This could be a good opportunity for traders to go long today on this pair.
Early this morning the pair dropped to a low of 1.5921 and could be ready for a reversal. The daily and 4-hour chart show the pair trading in the over sold zone on the RSI. The 30min chart also displays a bullish cross on the Slow Stochastic Oscillator. Going long with a tight stop may be the right move.
A correction on the 4H chart could be fore coming as a price move has reached the upper border of the Bollinger Bands. This may signal a move from the upper border all the way to the lower border. Going short with a tight stop may be a wise choice today.
The pair’s sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour and daily chart’s RSI. Not only that, but there is a bearish cross which has formed on the daily Slow Stochastic Oscillator. This information points to a possible downward correction today.

The Wild Card

It appears a bullish cross has recently formed on the hourly chart’s Slow Stochastic, indicating that this pair’s recent upward correction may still have some steam. Now would be a great time for forex traders to join this recent run and capture the remaining profits before the downward trend continues.

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